Private Equity
Blue Sky Capital Resources Insights - Year End Thoughts
December 2019
Since my last writing in September much has happened, and therefore I would like to bring several subjects to everyone’s attention. I will begin with what happened to the repo market and why it’s important. Then, I will also touch on demographics and their importance for the economy and financial markets. Finally, we’ll revisit the topic at the end of my last article on the consequences if rates stay very low for longer? This is a question I have been pondering for some time now. What is the impact on savings, pension funds and the banking system? What does this mean when valuing equities and private market investments?
On the 16th of September in the repo market rates were briefly blown out to 10% until the Fed intervened. Since then over $320 billion has been released due to the ongoing issues of liquidity in that market. This has effectively reversed the entire QE 2 unwinding of the past 18 months. The Fed has just announced the addition of $500 billion for the repo market going into year-end. The Fed has been very careful not to call this QE 3, but rather a repo adjustment…hmmm. In fact, the result is the same, the Fed has been injecting massive amounts of capital into the system. We should all be alarmed by this as it clearly shows there is a liquidity issue in the market. However, I would argue in the short term with all this added liquidity it has served as fuel to lift markets artificially.
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